Ethereum’s native token ETH crashes hours after the US Federal Reserve (Fed) announced Minutes of the December meeting showed that there was a faster schedule for the rate hikes in 2022.
According to the minutes, the Federal Open Market Committee (FOMC) was in favor of raising short-term interest rates “sooner or faster than participants expected”. According to the CME Group, trading on the futures market is interesting shows 2/3 chance of first increase in March.
ETH price fell more than 13.5% to as low as $ 3,300 within minutes of the minutes being released. The price is plummeting similarly across the crypto market, with Bitcoin falling more than 9% to nearly $ 42,100.
ETH price 4-hour chart | Source: TradingView
On the other hand, after the Fed announcement, ETH lost more than BTC.
It seems that traders are choosing to sell tokens when it comes to better long-term returns than Bitcoin. Specifically, even after this recent decline, ETH’s return is around 175% over the past 12 months. Bitcoin’s return, on the other hand, is almost 15.75% over the same period.
Performance of the top 15 cryptocurrencies after the Fed announced | Source: Messari
Similarly, ETH’s top rival SOL also saw more losses than Bitcoin, falling over 13.75% on the Fed news. However, the 12 month return hit 7,500%, which signals another serious correction if market bias continues to favor the bears.
ETH / BTC is reaching a critical level of recovery
ETH / BTC has also decreased in the past 24 hours. The pair fell more than 5% to 0.077 BTC. Accordingly, the price touched a critical support level near 0.078 BTC, which recently helped ETH rebound against Bitcoin by limiting the downtrend of the second largest cryptocurrency by market cap.
ETH / BTC Daily Price Chart and Key Support | Source: TradingView
Meanwhile, the 0.078 BTC support also appears to be the lower trendline of the descending triangle. A descending triangle is a continuation pattern that typically causes prices to follow the previous trend after a period of consolidation.
This increases the potential for ETH to maintain greater strength than Bitcoin in the long run, as long as it convincingly breaks the upper trendline of the triangle at higher volume.
It’s too early to fear the Fed
For the past few months, Fed officials have been playing around with the notion that US inflation is higher due to supply chain constraints, and Chairman Jerome Powell insists it will resolve itself. However, in his most recent meeting, he expressed less confidence in the narrative “inflation is temporary”.
This is mainly because the US consumer price index hit a nearly 40-year high of 6.8% year-on-year in November 2021. Meanwhile, core consumer prices excluding energy and food rose 4.7% yoy, beating the Fed’s preferred inflation target of 2%.
“I think the real risk now is more persistent inflation and an increased risk of higher inflation,” Powell said to speak on December 15 after the FOMC meeting closed.
US inflation over the years | Source: Bloomberg, Bureau of Labor Statistics
Madison Faller, global strategist at JPMorgan Private Bank, said investors shouldn’t fear the Fed as three rate cuts expected in 2022 won’t do much to contain consumer prices.
“Growth and inflation will slow down over the course of 2022, but will stay above historical trends. We believe this would make the risk of a Fed-induced material market correction much less. “
Fears of persistently higher inflation tend to devalue cash, leading mainstream investors to pour their money into the crypto sector.
For example, Thomas Peterffy, billionaire founder of the brokerage firm Interactive Brokers Group Inc., admits to keeping 2-3% of his net worth in crypto in case Fiat “goes to hell”. Likewise, Bridgewater Associates founder Ray Dalio announced last year that his portfolio includes Bitcoin.
The anti-inflation outlook promises to give ETH, which tends to closely follow the price movement of Bitcoin, some breathing space.
Meanwhile, Sean Farrell and Will McEvoy, strategists at Fundstrat Global, point out that investors should increase their investments in the smart contracts sector to make the most of the next market boom.
“Given the current macro landscape, leverage in the Bitcoin market, and the recent strong growth in the Altcoin market, we feel it is appropriate to appreciate Ethereum and other smart contract platforms. We are unlikely to be placing short-term bets on Bitcoin, but there is the possibility of long volatility from derivatives strategies. “
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